Open Market Rental What?

Commercial leases usually allow for a rent review at periodic intervals, which is an opportunity for the Landlord to revise the rent, often to their advantage. These rent reviews usually occur every third, fourth or fifth year of the term, however the actual date of the rent review can always be negotiated before entering into a lease.

What is Open Market Rental Value?

The short answer is that Open Market Rental Value is the amount of rent a commercial property is likely to achieve should it be let on the Open Market to a new Tenant. It is the usual basis on which the rent at a rent review or lease renewal is calculated, often shortened to OMRV. There are other ways, such as aligning the rent to the Retail Price Index, however OMRV is the predominant method.

At a lease renewal under the Landlord and Tenant Act 1954, the court uses the same test if Landlord and Tenant cannot agree: the rent at which the property “might reasonably be expected to be let in the open market by a willing lessor” (Landlord and Tenant Act 1954, section 34 (opens in a new tab)).

How is open market rent worked out?

By comparing the property with similar premises in terms of location, size and lease terms. A rent review may be impacted if a property is compared to a seemingly similar property, but the lease terms are different.

When negotiating a rent review, surveyors look at three kinds of transaction:

• recent open market lettings of genuinely similar premises
• lease renewals agreed within close proximity
• rent reviews agreed within close proximity

Renewals and reviews nearby are helpful guides because, if they were professionally negotiated, they are likely to also have been valued based upon the Open Market Rental Value, which makes them a reliable comparable.

What is the best evidence of open market rent?

A recent open market letting of genuinely similar premises. If a new, willing Tenant agrees to lease premises which are genuinely similar at a certain level of rent, this is often considered the best indication of the rental value of a property and is justifiable evidence of the Open Market Rental Value during a rent review negotiation.

It is unquestionable that recent Open Market Lettings are the true litmus test of the Open Market Rental Value, and they should be the basis for any evidence cited when negotiating your next commercial rent review or lease renewal.

Why compare rent per square foot, not the headline rent?

Because a neighbour’s higher rent may simply be for a bigger property. At Richard Lionel & Partners, clients regularly cite neighbouring rents to justify increases at their property without taking into consideration that rents are calculated per sq ft. The headline rent is usually not the important evidence compared to the amount of rent agreed per sq ft, and this is why professional representation is paramount.

For example, a shop of 1,500 sq ft let at £30,000 a year is paying £20 per sq ft, while a shop of 1,000 sq ft let at £25,000 a year is paying £25 per sq ft: more per foot, despite the lower rent.